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Monthly Archives: May 2010

Apparently Britain’s new Conservative (?) Prime Minister thinks owning second homes is “not necessarily a splendid investment for the whole economy” and therefore it is okay to raise Capital Gains Tax on the sale of them from the current 18 percent to possibly as much as 50 percent. This is all part of his so-called “fairness agenda” – CGT tax increases will allow the coalition government to take more people at the bottom out of tax altogether – that is to say, he will assist those who didn’t vote for him and kick in the teeth the people he did.

Aside from the electoral risk down the road of doing that – and let us leave out for the sake of this posting the fact that the Tories did not campaign on increasing CGT on second homes or shares – it is hard to fathom the “fairness” here.

About 250,000 British families own a second home and that there are one million buy-to-let properties. Many who bought a second home are not wealthy but decided after the Brown government raided private pensions that the best way to help weather their retirements with a little bit of dignity was to invest in property. After all no one can live on the old age pensions the UK supplies – that is if they want to avoid penury. So Cameron is punishing the people who are trying to ensure that they are not an increasing charge on the State.

No one doubts that Britain’s financial state is parlous but the emphasis must be on spending cuts and not tax increases — that is both a matter of fairness and good economic sense: Britain’s only hope is to grow out of the crisis.

At 50 per cent there will be a devastating effect on people who have bought buy-to-let properties as part of their pension investments.

Also as David Salusbury, the chairman of the National Landlords Association, has pointed out the CGT increase will “act as a barrier to further investment in residential property just at a time when there is an urgent need for more housing”.

We are in “July 2008” again, but this time it isn’t the investment banks melting down but the Euro-zone countries led by Greece. The EU and ECB intervention can be compared to the actions of Hank Paulson and Ben Bernanke in the months leading to the collapse of Lehman: back then, you will recall, the Fed and the Treasury Department had arranged the takeover of Bear Stearns and the U.S. government was investing in “the twins” – Fannie Mae and Freddie Mac – and preparing to make them full wards of government. “If you have a bazooka in your pocket and people know it, you probably won’t have to use it,” Paulson had told the Congress. But the panic continued unabated.

Now the EU and ECB have been waving a bazooka. But now as then everyone knows it is a borrowed one: the funds the EU is prepared to marshal are based on more debt and more borrowing. Now as then there is no psychological relief from the policymakers being on the case – there is just frantic concern from market participants that the problem may be beyond repair. In short, the sovereign debt crisis in Europe is going to get a lot worse.